Robert Goodman Accountants Blog

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The Tax Institute has published on its Federal Budget website a summary table setting out the Coalition and Labor policies for superannuation.  

This may help you understand the competing policies being offered.

Call us at Robert Goodman Accountants on 07 3289 1700 or email us at reception@rgoodman.com.au.  © Copyright 2019 The Tax Institute. Brought to you by Robert Goodman Accountants.  

A screenshot of a cell phone Description automatically generated

The Tax Institute has published on its Federal Budget website a summary table setting out the Coalition and Labor policies for businesses.  

This may help you understand the competing policies being offered.

Call us at Robert Goodman Accountants on 07 3289 1700 or email us at reception@rgoodman.com.au.  © Copyright 2019 The Tax Institute. Brought to you by Robert Goodman Accountants.  

 

The ATO has recently highlighted the top three compliance breaches it sees among SMSFs – a helpful insight into the areas that are frequently tripping up SMSF trustees. The ATO says it will work with cooperative trustees to help them rectify breaches and get their fund back on track. But even with the best intentions, fixing these problems can be expensive, time-consuming and stressful. Our handy list of the top three compliance traps will help you avoid these headaches.

Loans or financial assistance to members (21.1%)

SMSFs may not lend money, or provide other "financial assistance", to a member of the fund or a relative of a member. This sounds like a simple enough rule, but it's not just loans of money (both documented and undocumented) that fall foul of this restriction – giving "financial assistance" is a broad concept and the ATO interprets this to include scenarios such as:

  • selling an asset to a member or relative below market value, or purchasing an asset above market value;
  • paying for services performed by a member or relative in excess of what the SMSF requires (or paying inflated prices for such services); and
  • financial assistance provided indirectly, eg where an SMSF enters into an arrangement with another entity who in turn provides financial assistance to an SMSF member or their relative.
  • Members facing personal financial difficulties may be tempted to skew the terms of an SMSF arrangement to benefit themselves personally. If you are experiencing financial stress, seek advice about your options (including whether you may be able to validly access your superannuation benefits on financial hardship or compassionate grounds).

In-house assets (18.7%)

The in-house asset (IHA) rules limit the amount that SMSFs can invest in arrangements controlled by related parties. There are three types of IHAs:

  • a loan to a related entity (eg a loan to the members' family trust);
  • an investment in a related company or trust (eg buying shares or units in a company or unit trust that the members or their associates control); and
  • an asset of the fund (other than commercial property) leased to a related entity.
  • SMSFs are not permitted to hold IHAs worth more than 5% of the fund's assets. This means SMSFs must have no or very minimal IHAs.

The rules here, including certain exceptions that apply, can be quite technical. In particular, the rules regarding when a person or entity (such as a company or trust) is "related" to the SMSF are broader than some trustees might imagine.

The key is to seek professional advice before transacting with any party that is, or could be, related. If you later discover your fund has an IHA issue, at a minimum you will need to dispose of the problem investments.

Failure to keep personal assets separate from the SMSF (12.8%)

SMSF trustees must keep the fund's money and assets separate from those the trustees own personally. This means cash should be kept in a separate bank account in the fund's name, and the fund's ownership of assets (eg property and shares) must be carefully registered.

Appointing a company as trustee of the SMSF that is used solely to act as the trustee of that fund is a great practical step to ensure compliance with this rule.

Stay off the ATO's radar

Proactive planning is the best way to ensure your SMSF investments are compliant and your retirement savings are secure. Contact us for expert advice. We can refer you to a licenced financial planner for investment advice on your SMSF's proposed investments.

© Copyright 2019. All rights reserved. Source: Thomson Reuters.  IMPORTANT: This communication is factual only and does not constitute financial advice. Please consult a licensed financial planner for advice tailored to your financial circumstances. Brought to you by Robert Goodman Accountants. 

2019 Federal Budget

 

The Treasurer, the Hon Josh Frydenberg MP handed down his first Federal Budget on Tuesday 2 April 2019, announcing a $7.1 billion surplus. 

There are tax cuts for individuals earning up to $126,000 p.a. and business with annual turnover up to $50M. Personal tax cuts will be delivered largely through an immediate substantial increase to the so-called low and middle-income tax offset to $1,080 for singles; and  $2,160 for couples. This offset will apply for four income years commencing in 2018-19. The full tax benefit of $1,080 will flow straight to singles earning between $48,000 and $90,000 p.a. (around 4.5 million taxpayers). Lesser amounts will apply at other levels up to $126,000 p.a. 

From 2024-25, the 32.5% marginal tax rate will be reduced to 30%, from 2022-23 the 19% bracket will cut in at $45,000 rather than $41,000, and from 2022-23 the low-income tax offset will be increased from $645 to $700. 

Small and medium business tax cuts will reduce the company tax rate to 25% from 2021-22 and increase the instant asset write-off to $30,000 for assets acquired after 7.30pm on April 2019. These measures will only apply to business around turnovers of less than $50 million. The instant asset write-off applies on a per asset basis so eligible business can instantly write off multiple assets. 

Key other changes

  • From 1 July 2020, voluntary superannuation contributions (both concessional and non- concessional) will be able to be made by those aged 65 and 66 without meeting the work test. People aged 65 and 66 will also be able to make up to 3 years of non-concessional contributions under the bring forward rule. This broadly aligns the work test with the eligibility age for the age pension
  • The increase in the age limit for spouse contributions to 74 to give older Australians greater flexibility to save for retirement.
  • A deferral of the start date for the so called "Division 7A Integrity Rule" from 1 July 2019 to 1 July 2020. This is designed to allow for further consultation and to ensure appropriate transitional arrangements so taxpayers are not unfairly prejudiced.

PERSONAL TAXATION

Personal tax cuts: low–mid tax offset increase now; more rate changes from 2022

In the 2019–2020 Federal Budget, the Coalition Government announced its intention to provide further reductions in tax through the non-refundable low and middle income tax offset (LMITO).

Under the changes, the maximum reduction in an eligible individual's tax from the LMITO will increase from $530 to $1,080 per year. The base amount will increase from $200 to $255 per year for 2018–2019, 2019–2020, 2020–2021 and 2021–2022 income years. In summary:

•       The LMITO will now provide a tax reduction of up to $255 for taxpayers with a taxable income of $37,000 or less.

•       Between taxable incomes of $37,000 and $48,000, the value of the offset will increase by 7.5 cents per dollar to the maximum offset of $1,080.

•       Taxpayers with taxable incomes between $48,000 and $90,000 will be eligible for the maximum offset of $1,080.

•       From taxable incomes of $90,000 to $126,000 the offset will phase out at a rate of 3 cents per dollar.

Individuals will receive the LMITO on assessment after lodging their tax returns for 2018–2019, 2019–2020, 2020–2021 and 2021–2022. This is designed to ensure that taxpayers receive a benefit when lodging returns from 1 July 2019.

Rate and threshold changes from 2022 and beyond

From 1 July 2022, the Government proposes to increase the top threshold of the 19% personal income tax bracket from $41,000 to $45,000.

Also from 1 July 2022, the Government proposes to increase the low income tax offset (LITO) from $645 to $700. The increased LITO will be withdrawn at a rate of 5 cents per dollar between taxable incomes of $37,500 and $45,000 (instead of at 6.5 cents per dollar between taxable incomes of $37,000 and $41,000 as previously legislated). LITO will then be withdrawn at a rate of 1.5 cents per dollar between taxable incomes of $45,000 and $66,667.

Together, the increased top threshold of the 19% personal income tax bracket and the changes to LITO would lock in the tax reduction provided by LMITO, when LMITO is removed.

From 2024–2025, the Government intends to reduce the 32.5% marginal tax rate to 30%. This will more closely align the middle personal income tax bracket with corporate tax rates. In 2024–2025 an entire tax bracket – the 37% tax bracket – will be abolished under the Government's already-legislated plan. With these changes, by 2024–2025 around 94% of Australian taxpayers are projected to face a marginal tax rate of 30% or less.

Therefore, under the changes announced in the Budget, from 2024–2025 there would only be three personal income tax rates: 19%, 30% and 45%. From 1 July 2024, taxpayers earning between $45,000 and $200,000 will face a marginal tax rate of 30%.

The Government says these changes will maintain a progressive tax system. It is projected that in 2024–2025 around 60% of all personal income tax will be paid by the highest earning 20% of taxpayers – which is broadly similar to that cohort's share if 2017–2018 rates and thresholds were left unchanged. The share of personal income tax paid also remains similar for the top 1%, 5% and 10% of taxpayers.

Under its Budget announcements, the Government says an individual with taxable income of $200,000 may be earning 4.4 times more income than an individual with taxable income of $45,000, but in 2024–2025 the higher-income person will pay around 10 times more tax.

Medicare levy low-income thresholds for 2018–2019

For the 2018–2019 income year, the Medicare levy low-income threshold for singles will be increased to $22,398 (up from $21,980 for 2017–2018). For couples with no children, the family income threshold will be increased to $37,794 (up from $37,089 for 2017–2018). The additional amount of threshold for each dependent child or student will be increased to $3,471 (up from $3,406).

For single seniors and pensioners eligible for the seniors and pensioners tax offset (SAPTO), the Medicare levy low-income threshold will be increased to $35,418 (up from $34,758 for 2017–2018). The family threshold for seniors and pensioners will be increased to $49,304 (up from $48,385), plus $3,471 for each dependent child or student.

The increased thresholds will apply to the 2018–2019 and later income years. Note that legislation is required to amend the thresholds, so a Bill will be introduced shortly.

Social security income automatic reporting via Single Touch Payroll

The Government intends to automate the reporting of individuals' employment income for social security purposes through Single Touch Payroll (STP).

From 1 July 2020, income support recipients who are employed will report income they receive during the fortnight, rather than calculating and reporting their earnings. Each fortnight, income data received through an expansion of STP data-sharing arrangements will also be shared with the Department of Human Services, for recipients with employers utilising STP.

This measure will assist income support recipients by greatly reducing the likelihood of them receiving an overpayment of income support payments (and subsequently being required to repay it).

The measure is expected to save $2.1 billion over five years from 2018–2019. The Government says the efficiencies from this measure will be derived through more accurate reporting of incomes. This measure will not change income support eligibility criteria or maximum payment rates. The resulting efficiencies will be redirected by the Government to repair the Budget and fund policy priorities.

STP expansion

The Government will provide $82.4 million over four years from 2019–2020 to the ATO and the Department of Veterans' Affairs to support the expansion of the data collected through STP by the ATO and the use of this data by Commonwealth agencies.

STP data will be expanded to include more information about gross pay amounts and other details. These changes will reduce the compliance burden for employers and individuals reporting information to multiple Government agencies.

BUSINESS TAXATION

Instant asset write-off extended to more taxpayers; threshold increased

The Budget contains important changes to the instant asset write-off rules. These changes are in addition to the measures contained in a Bill currently before Parliament.

There are two key changes.

First, the write-off has been extended to medium sized businesses, where it previously only applied to small business entities.

The second important change is that the instant asset write-off threshold is to increase from $25,000 to $30,000. The threshold applies on a per-asset basis, so eligible businesses can instantly write off multiple assets.

The threshold increase will apply from 2 April 2019 to 30 June 2020.

Small businesses

Small business entities (ie those with aggregated annual turnover of less than $10 million) will be able to immediately deduct purchases of eligible assets costing less than $30,000 and first used, or installed ready for use, from 2 April 2019 to 30 June 2020.

Small businesses can continue to place assets which cannot be immediately deducted into the small business simplified depreciation pool and depreciate those assets at 15% in the first income year and 30% each income year thereafter. The pool balance can also be immediately deducted if it is less than the applicable instant asset write-off threshold at the end of the income year (including existing pools). The current "lock out" laws for the simplified depreciation rules (which prevent small businesses from re-entering the simplified depreciation regime for five years if they opt out) will continue to be suspended until 30 June 2020.

Medium sized businesses

Medium sized businesses (ie those with aggregated annual turnover of $10 million or more, but less than $50 million) will also be able to immediately deduct purchases of eligible assets costing less than $30,000 and first used, or installed ready for use, from 2 April 2019 to 30 June 2020.

The asset purchase date is critical. The concession will only apply to assets acquired after 2 April 2019 by medium sized businesses (as they have previously not had access to the instant asset write-off) up to 30 June 2020.

Arrangements before 2 April 2019

The Treasury Laws Amendment (Increasing the Instant Asset Write-Off for Small Business Entities) Bill 2019 was introduced in Parliament on 13 February 2019. It proposes to amend the tax law to increase the threshold below which amounts can be immediately deducted under these rules from $20,000 to $25,000 from 29 January 2019 until 30 June 2020, and extend by 12 months to 30 June 2020 the period during which small business entities can access expanded accelerated depreciation rules (instant asset write-off). The Bill is still before the House of Representatives.

The changes in the Bill interact with the Budget changes. This means that, when legislated, small businesses will be able to immediately deduct purchases of eligible assets costing less than $25,000 and first used or installed ready for use over the period from 29 January 2019 until 2 April 2019. The changes outlined above will take affect from then (with access extended to medium sized businesses).

Date of effect

The changes announced in the Budget will apply from 2 April 2019 to 30 June 2020.

Accordingly, the threshold is due to revert to $1,000 on 1 July 2020. Although it is not spelt out in the Budget papers, a Treasury official confirmed to Thomson Reuters on Budget night that from that time the concession will only be available to small business entities (ie the instant asset write-off will not be available to medium sized businesses).

 

REGULATION, COMPLIANCE AND INTEGRITY

Tax integrity focus on larger businesses' unpaid tax and super

The Government will provide ATO funding of $42.1 million over four years to to increase activities to recover unpaid tax and superannuation liabilities. These activities will focus on larger businesses and high wealth individuals to ensure on-time payment of their tax and superannuation liabilities. However, the measure will not extend to small businesses.

Tax Avoidance Taskforce on Large Corporates: more funding

The Government will also provide the ATO with $1 billion in funding over four years from 2019–2020 to extend the operation of the Tax Avoidance Taskforce and to expand the Taskforce's programs and market coverage.

The Taskforce undertakes compliance activities targeting multinationals, large public and private groups, trusts and high wealth individuals. This measure is intended to allow the Taskforce to expand these activities, including increasing its scrutiny of specialist tax advisors and intermediaries that promote tax avoidance schemes and strategies.

The Government has also provided $24.2 million to Treasury in 2018–2019 to conduct a communications campaign focused on improving the integrity of the Australian tax system.

Black Economy Taskforce: strengthening the ABN rules

The Government intends to strengthen the Australian Business Number (ABN) system by imposing new compliance obligations for ABN holders to retain their ABN.

Currently, ABN holders can retain their ABN regardless of whether they are meeting their income tax return lodgment obligation or the obligation to update their ABN details.

From 1 July 2021, ABN holders with an income tax return obligation will be required to lodge their income tax return and from 1 July 2022 confirm the accuracy of their details on the Australian Business Register annually.

These new requirements will make ABN holders more accountable for meeting their government obligations, while minimising the regulatory impact on businesses complying with the law.

This measure stems from the 2018–2019 Budget measure Black Economy Taskforce: consultation on new regulatory framework for ABNs.

Funding for Government response to Banking Royal Commission

The Government will provide $606.7 million over five years from 2018–2019 to facilitate its response to the Hayne Banking Royal Commission.

On 4 February 2019, the Government proposed measures to take action on all 76 of the Royal Commission's final report recommendations, including:

•       designing and implementing an industry-funded compensation scheme of last resort for consumers and small business ($2.6 million over two years from 2019–2020);

•       providing the Australian Financial Complaints Authority (AFCA) with additional funding to help establish a historical redress scheme to consider eligible financial complaints dating back to 1 January 2008 ($2.8 million in 2018–2019);

•       paying compensation owed to consumers and small businesses from legacy unpaid external dispute resolution determinations ($30.7 million in 2019–2020);

•       resourcing ASIC to implement its new enforcement strategy and expand its capabilities and roles in accordance with the recommendations of the Royal Commission ($404.8 million over four years from 2019–2020);

•       resourcing APRA to strengthen its supervisory and enforcement activities, including with respect to governance, culture and remuneration ($145 million over four years from 2019–2020);

•       establishing an independent financial regulator oversight authority, to assess and report on the effectiveness of ASIC and APRA in discharging their functions and meeting their statutory objectives ($7.7 million over three years from 2020–2021);

•       undertaking a capability review of APRA which will examine its effectiveness and efficiency in delivering its statutory mandate, as well as its capability to respond to the Royal Commission ($1 million in 2018–2019);

•       establishing a Financial Services Reform Implementation Taskforce within the Treasury to implement the Government's response to the Royal Commission, and coordinate reform efforts with APRA, ASIC and other agencies through an implementation steering committee ($11.2 million in 2019–2020); and

•       providing the Office of Parliamentary Counsel with additional funding for the volume of legislative drafting that will be required to implement the Government's response ($0.9 million in 2019–2020).

The Government said these costs will be partially offset by revenue received through ASIC's industry funding model and increases in the APRA Financial Institutions Supervisory Levies.

ATO analytics: increased funding

The Government will also provide funding designed to increase the ATO's analytical capabilities.

First, the Government will provide $70 million over two years from 2018–2019 to undertake preparatory work required for the ATO to migrate from its existing data centre provider to an "alternative data centre facility". The funding will also be used to prepare a second-pass business case that will identify the full cost of activities required to complete the data centre migration project.

The Government will also provide $6.9 million over four years from 2019–2020 to support additional analytical capabilities within the Treasury and other agencies.

SUPERANNUATION

Super contributions work test exemption extended; spouse contributions age limit increased

The Budget confirmed the Treasurer's announcement on 1 April 2019 that individuals aged 65 and 66 will be able to make voluntary superannuation contributions from 1 July 2020 (both concessional and non-concessional) without needing to meet the contributions work test. The age limit for making spouse contributions will also be increased from 69 to 74.

Super contributions work test

Currently, individuals aged 65–74 must work at least 40 hours in any 30-day period in the financial year in which the contributions are made (the "work test") in order to make voluntary personal contributions.

The proposed extension of the work test exemption means that individuals aged 65 or 66 who don't meet the work test – because they may only work one day a week or volunteer – will be able to make voluntary contributions to superannuation, giving them greater flexibility as they near retirement. Around 55,000 people aged 65 and 66 are expected to benefit from this reform in 2020–2021.

The Treasurer said the proposed change will align the work test with the eligibility for the Age Pension, which is scheduled to reach age 67 from 1 July 2023.

The tax law will also be amended to extend access to the bring-forward arrangements for non-concessional contributions to those aged 65 and 66. The bring-forward rules currently allows individuals aged less than 65 years to make three years' worth of non-concessional contributions (which are generally capped at $100,000 a year) in a single year. This will be extended to those aged 65 and 66. Otherwise, the existing annual caps for concessional contributions and non-concessional contributions ($25,000 and $100,000 respectively) will continue to apply.

Spouse contributions age limit increase

The age limit for making spouse contributions will be increased from 69 to 74. Currently, those aged 70 and over cannot receive contributions made by another person on their behalf.

The proposed increased age limit for spouse contributions may enable more taxpayers to obtain a tax offset for spouse contributions from 1 July 2020. A tax offset is currently available up to $540 for a resident taxpayer in respect of eligible contributions made on behalf of their spouse. The spouse's assessable income, reportable fringe benefits and reportable employer superannuation contributions must be less than $37,000 in total to obtain the maximum tax offset of $540, and less than $40,000 to obtain a partial tax offset. Of course, if the spouse in respect of whom the contribution is made is aged 67–74 from 1 July 2020, the spouse may still need to satisfy the requisite work test in order for the super fund to accept the contribution.

Exempt current pension income calculation to be simplified for super funds

Superannuation fund trustees with interests in both the accumulation and retirement phases during an income year will be allowed to choose their preferred method of calculating exempt current pension income (ECPI).

The Government will also remove a redundant requirement for superannuation funds to obtain an actuarial certificate when calculating ECPI using the proportionate method, where all members of the fund are fully in the retirement phase for all of the income year.

Background

There are two methods to work out the ECPI for a complying superannuation fund:

•       segregated method – the segregation of specific assets (segregated current pension assets) which are set aside to meet current pension liabilities; or

•       proportionate method – a proportion of assessable income attributable to current pension liabilities is exempt.

Since 1 July 2017, SMSFs and small APRA funds (SAFs) are prevented from using the segregated method to determine their ECPI if there are any fund members in retirement phase with a total superannuation balance that exceeds $1.6 million on 30 June of the previous income year. Such SMSFs and SAFs with "disregarded small fund assets" are instead required to use the proportionate method. This is currently the case even if the fund's only member interests are retirement phase superannuation income streams whereby an actuarial certificate will provide a 100% tax exemption for the income in any event.

Where a SMSF is 100% in pension phase for all or part of an income year, the ATO considers that all of the fund's assets are "segregated current pension assets" and the fund cannot choose to use the alternative proportionate method. The ATO has previously acknowledged that this legal view is at odds with an industry practice whereby some SMSFs have used the proportionate method even if the fund was solely in pension phase. The ATO therefore granted an administrative concession whereby SMSF trustees did not face compliance action for 2016–2017 and prior years for ECPI calculations based on an industry practice. However, for 2017–2018 and later years, the ATO has expected funds that are 100% in pension phase to only use the segregated method.

Super insurance opt-in rule for low balances: delayed start date confirmed

The Government has confirmed that it will delay the start date to 1 October 2019 for ensuring insurance within superannuation is only offered on an opt-in basis for accounts with balances of less than $6,000 and new accounts belonging to members under age 25.

That delayed start day of 1 October 2019 was previously announced as part of the Treasury Laws Amendment (Putting Members' Interests First) Bill 2019, which was introduced in the House of Reps on 20 February 2019. That Bill (currently before Parliament) proposes to amend the super law to
prevent insurance within superannuation from being provided on an opt-out basis for account balances less than $6,000 and members under 25 years old (who begin to hold a new product on or after 1 October 2019).

Members will still be able to obtain insurance cover within their superannuation by electing to do so (ie opting in). The changes seek to prevent the erosion of super savings through inappropriate insurance premiums and duplicate cover.

The Putting Members' Interests First Bill essentially re-introduced the Government's policy proposal that was previously contained in the Treasury Laws Amendment (Protecting Your Superannuation Package) Bill 2018. That Bill received Royal Assent on 12 March 2019, after being passed with Greens' amendments that removed aspects of the insurance opt-in rule for account balances less than $6,000 and members under 25. The Government agreed to those amendments in the Senate to ensure the prompt passage of the other measures in that Bill. As enacted, that Bill requires a trustee to stop providing insurance on an opt-out basis from 1 July 2019 to a member who has had a product that has been inactive for 16 months or more, unless the member has directed the trustee to continue providing insurance.

Call us at Robert Goodman Accountants on 07 3289 1700 or email us at reception@rgoodman.com.au.  © Copyright 2019. All rights reserved. Source: Thomson Reuters. Additional thanks to the Tax Institute and CAANZ.  Brought to you by Robert Goodman Accountants.  

Many homeowners are not aware that the "main residence" rules exempting the family home from capital gains tax (CGT) are in fact quite complex and contain many traps. Here we highlight three common scenarios in which a homeowner may face some CGT liability when it is time to sell.

1.Using your home to generate income: If you use your residence to produce assessable income, like running a business from your home, you will generally only be eligible for a partial exemption from CGT. But did you know that this also applies to renting out your home – or even just a room – through sites such as Airbnb? The size of your CGT exemption will generally depend on how long you used the home to produce assessable income and the relevant proportion of total floor space.

You may still be eligible for a full main residence exemption if you move out of the home before you start using it to produce income. However, you can only treat that home as your main residence for a maximum of six years, and it means you cannot treat any other property you live in during that time as your main residence.

2. Land greater than two hectares: Farmers and large property owners should be aware that the main residence exemption covers your dwelling and the adjacent land used primarily for private purposes, if the total area does not exceed two hectares.

This means a residential property (or a residential area of an income-producing farm) greater than two hectares will not be completely exempt from CGT. In this case, the owner can choose which two hectares will attract the exemption and obtain a property valuation to substantiate the value of that selected area.

3. Moving home: When buying a new home and selling your old one, you generally have a six-month grace period in which both the old and new homes are treated as your main residence. However, if you are unable to sell your old home within six months of purchasing the new property, the main residence exemption only applies to both homes for the six months before you dispose of the old home. There will be an "excess" period beyond the six-month window that creates a CGT liability.

The key to maximising your main residence exemption is to be aware of potential traps and to plan ahead. Contact our office today to develop a tax-effective CGT strategy.

Call us at Robert Goodman Accountants on 07 3289 1700 or email us at reception@rgoodman.com.au.  © Copyright 2019. All rights reserved. Source: Thomson Reuters. Brought to you by Robert Goodman Accountants.  

Have you ever taken home an item of your business' trading stock for your own personal use, or use by your family members? This is common in many businesses such as bakeries, butchers and cafés, but it does have some tax consequences. "Trading stock" means anything that you hold in the business for the purposes of manufacture, sale or exchange. An example is a café owner who consumes some of the food on hand in their café.

If you use any trading stock for personal use, you need to declare this in your business' tax return. This is because you are treated as if you sold the trading stock to someone else, and the value of that stock is therefore assessable income.

The ATO accepts two different ways of accounting for this stock: an estimate based on ATO guidelines or an actual value using your own records.

Method 1: ATO estimate

The ATO recognises that record-keeping in these circumstances is often difficult or impractical. To help business taxpayers, it publishes some estimates of personal use for selected industries. The ATO's estimates for the 2018-2019 income year are as follows:

Type of business

Amount (excl. GST) for adult/child over 16 years

Amount (excl. GST) for child 4 to 16 years old

Bakery

$1,350

$675

Butcher

$830

$415

Restaurant/café (licensed)

$4,640

$1,750

Restaurant/café (unlicensed)

$3,500

$1,750

Caterer

$3,790

$1,895

Delicatessen

$3,500

$1,750

Fruiterer/greengrocer

$800

$400

Takeaway food shop

$3,430

$1,715

Mixed business (includes milk bar, general store and convenience store)

$4,260

$2,130

 

Example: Susan runs a takeaway business and often brings home various food items for her family to eat. It is not always practical to record the value of every item she brings home. Her family includes herself, her husband and child aged 11 years. When preparing her business' tax return, she uses the ATO estimates for takeaway shops for two adults (2 x $3,430) and one child (1 x $1,715), a total of $8,575. She declares this as assessable income in her return.

Method 2: actual value

Alternatively, a business may declare the actual value of goods taken from stock. This option would suit businesses who can show that they took a lesser amount for personal use than the ATO's estimates. This option requires thorough record-keeping as you will need to keep details of the date; a description of what was taken; why it was taken; and the value of the item (excl. GST).

Get help from the professionals

Declaring private use of trading stock is just one aspect of the trading stock tax rules. Contact our office for expert assistance in preparing your business tax return. We take the stress out of taxes so that you are free to focus on running your business.

Call us at Robert Goodman Accountants on 07 3289 1700 or email us at reception@rgoodman.com.au.  © Copyright 2019. All rights reserved. Source: Thomson Reuters. Brought to you by Robert Goodman Accountants.  

Millions of Australians are now using the "sharing" economy to earn some extra money on the side. Thanks to smartphones and user-friendly app technology, people young and old are using peer-to-peer digital platforms to access sharing services like ride sharing, accommodation sharing, "odd jobs" networks and even pet minding.

The government is concerned that some Australians who receive income from sharing platforms may not be paying the right amount of tax – simply because they are unaware of their tax obligations.

In this instalment of our ongoing series on the sharing economy, we focus on your tax obligations when earning money from a short-term residential accommodation sharing platform such as Airbnb or Stayz.

Do I have to pay tax on these amounts?

The income you earn from accommodation sharing platforms is assessable income that you must declare in your tax return. The ATO does not consider this to be "hobby" income, even if you only share your property occasionally.

You can claim deductions for relevant expenses you incur, such as:

  • fees or commissions charged by the digital platform;
  • interest payments you make on a loan to purchase the property;
  • utilities like gas and electricity;
  • council rates;
  • insurance premiums; and
  • professional cleaning costs.

However, in many cases you will only be able to claim part of an expense. Expenses that are purely related to renting the property (eg platform fees) are entirely deductible, but you will generally need to apportion an expense where:

  • the expense also relates to a private or personal use;
  • the property is rented out, or is available to rent, for only part of the year; or
  • you only rent out a room, rather than the whole property.

Goods and services tax

Goods and services tax (GST) in the sharing economy can be confusing. The good news is that for residential accommodation, GST does not apply, even if you also earn income from another type of sharing platform where you are required to account for GST (eg ride sharing).

Capital gains tax

If you have rented out your home through the sharing economy and decide to sell it – you may only be entitled to a partial exemption from capital gains tax, depending on how long you rented out your home and the floor space that this rental activity relates to.

Unsure about your tax position?

As with all rental properties, earning money through accommodation sharing sites requires careful record-keeping and documentary proof. Talk to us today to make sure you are claiming all available deductions or to discuss how your main residence might be affected for CGT purposes.

Call us at Robert Goodman Accountants on 07 3289 1700 or email us at reception@rgoodman.com.au.  © Copyright 2019. All rights reserved. Source: Thomson Reuters. Brought to you by Robert Goodman Accountants.  

One of the key investment rules that SMSF trustees must be familiar with are the laws restricting "non-arm's length" dealings. In essence, SMSFs are prohibited from dealing with a related party of the fund on uncommercial terms and, where these terms are too favourable to the SMSF, hefty tax penalties can apply.

Proposed laws before Parliament are set to tighten these rules further, so now is a good time for SMSF trustees to ensure they understand this area.

What is non-arm's length income?

Any dealing between an SMSF trustee and a related party (such as a member or member's relative, or a trust or company the member controls) must be on "arm's length" terms. This means SMSFs cannot enter into transactions that are less or more favourable to the SMSF than commercial transactions.

Importantly, where an SMSF is not dealing at arm's length with the other party and it earns more income than it might have been expected to earn under an arm's length arrangement, all of the income from the arrangement – not just the excessive component – is taxed at a penalty rate of 45%.

This is in contrast to the usual 15% tax rate for funds in accumulation phase (or 0% to the extent the earnings come from assets supporting a pension). This is known as "non-arm's length income" (NALI) and is illustrated by the following example:

Bob's SMSF owns a commercial property that it leases to Bob's manufacturing business. The parties sign a lease with rent set at $1,200 per week, even though the market rate of rent for comparable commercial premises in the area is around $800 per week. This results in the SMSF earning more rental income than it would under an arm's length arrangement. All of the SMSF's rental income – not just the amount by which it exceeds the market rate – will be taxed at 45%.

Proposed changes to capture expenses

Proposed amendments before Parliament will expand this regime so that income received by an SMSF that has not been dealing at arm's length will also be taxed as NALI if, in gaining or producing the income, the fund has either not incurred a loss or expense that it might have been expected to incur if the parties had been dealing at arm's length, or incurred a loss or expense that is less than the amount it might have been expected to incur.

One specific scenario that the amendments aim to capture is property acquired under a limited recourse borrowing arrangement where the rental income earned by the SMSF is at market rates, but the interest expenses paid by the SMSF to a related party lender are less than market rates. Under the proposed new laws, the rental income would be taxed as NALI because, even though it is at market rates, it is earned in connection with a scheme where the SMSF has not incurred arm's length expenses.

The new laws also clarify that the NALI measures apply to capital expenditure. For example, where an SMSF acquires an asset below market value, not only will the rental income be taxed as NALI, but also the capital gain that results when the SMSF later disposes of the asset.

Know when to seek advice

The key to ensuring your SMSF does not fall foul of the NALI rules is to seek advice before entering into any arrangements with related parties. Contact us today if you are thinking about an investment opportunity for your SMSF that may involve a related party.

© Copyright 2019. All rights reserved. Source: Thomson Reuters.  IMPORTANT: This communication is factual only and does not constitute financial advice. Please consult a licensed financial planner for advice tailored to your financial circumstances. Brought to you by Robert Goodman Accountants. 

For many Australians, the control and flexibility offered by an SMSF makes this an attractive option for managing their superannuation. However, being an SMSF trustee carries significant responsibilities. In a case last year (Hart and Commissioner of Taxation), the Administrative Appeals Tribunal underlined the consequences that can flow when SMSF trustees do not take their responsibilities seriously.

The facts

A married couple were the trustees and members of their SMSF. After their marriage broke down in 2012, the SMSF's auditor notified the ATO that the fund had breached a superannuation law. An ATO audit then uncovered many more compliance issues. Some of the activities that concerned the ATO included:

  • a supposed "investment" by the SMSF in a related Philippines company, where the face value of the issued shares was a fraction of the $100,000 paid for them;
  • withdrawal of other moneys without meeting any condition of release;
  • the husband declaring the wife's benefits in the SMSF had been "forfeited"; and
  • the transfer of the couple's "hobby farm" into the SMSF that was, among many issues, not correctly registered in the name of the trustees and not transferred at market value.

These actions involved serious alleged breaches of numerous superannuation laws. Ultimately, the Commissioner exercised his power to disqualify the husband from being a trustee of a superannuation fund. The husband applied to the Tribunal for a review of the Commissioner's decision.

The Tribunal's findings

By law, the Commissioner may disqualify a person if either the number or seriousness of the person's contraventions of superannuation law justifies their disqualification or the person is not a "fit and proper person" to be a trustee.

The Tribunal said the first ground was met because it was "abundantly clear" the husband had breached superannuation laws numerous times and the breaches were "extremely serious". The Tribunal also found that the husband unquestionably failed the alternative "fit and proper person" test.

Notably, the Tribunal had observed that the husband gave "less than satisfactory" answers and tried to deflect responsibility or confuse the issues. They also noted that he was not candid when dealing with the ATO.and that there was a "serious suspicion" that he had falsified signatures on documents. The Tribunal therefore affirmed the Commissioner's decision to disqualify the husband from acting as an SMSF trustee again.

Lessons for SMSF trustees

This decision highlights the importance of honesty and cooperation when dealing with the ATO during an audit, and also that the ATO and courts will not look favourably upon SMSF trustees whose ignorance of the law and behaviour indicate they are not a "fit and proper person" to be a trustee.

Understand your responsibilities

In order to hold benefits in an SMSF, you must be prepared to genuinely undertake trusteeship of the fund. Contact our office if you are considering establishing an SMSF and need more information about the duties and responsibilities of SMSF trustees.

© Copyright 2019. All rights reserved. Source: Thomson Reuters.  IMPORTANT: This communication is factual only and does not constitute financial advice. Please consult a licensed financial planner for advice tailored to your financial circumstances. Brought to you by Robert Goodman Accountants. 

ATO impersonation scams on the rise

The ATO has recently warned taxpayers to be alert to malicious scammers who are using increasingly sophisticated methods and technology to impersonate the ATO. A new tactic on the rise involves "spoofing", whereby scammers mimic a legitimate ATO phone number visible on caller ID to call or send SMS messages to taxpayers, or mimic a legitimate email domain to send emails.

The SMSs and emails sometimes ask the recipient to click on a link and provide their personal details in order to obtain an alleged "refund" from the ATO. Alternatively, the scammers may ask the taxpayer to pay a fake tax debt. The ATO warns Australians that these scammers intend to steal not only your money, but also sometimes your identity via your personal information.

The risk of falling victim to a "spoofing" scam is even greater considering that some scammers hold enough personal information about the targeted taxpayer to appear genuine.

How to spot a scam

As the ATO legitimately contacts taxpayers by phone, SMS and email from time to time, it's important to know how to spot the tell-tale signs of a scammer who is impersonating the ATO.

The ATO does not:

  • send emails or SMSs asking taxpayers to click on a link to provide details such as login, personal or financial information, or to download a file, open an attachment or install software;
  • behave aggressively or threaten taxpayers with arrest, jail or deportation;
  • ask taxpayers to pay an ATO debt via iTunes, pre-paid Visa cards or cryptocurrency;
  • ask for payment of a debt by direct credit to a personal bank account – the ATO will only ask taxpayers to transfer money into an account with the "Reserve Bank of Australia"; or
  • use its social media accounts (eg Facebook, Twitter and LinkedIn) to ask individuals for personal information such as tax file numbers.

What to do if you're targeted

If you are unsure whether a communication is legitimate, do not respond or click on any links or open any attachments. You can call the ATO's scam hotline on 1800 008 540 and they can tell you whether the communication was legitimate.

If you have made a payment to someone you later suspect is a scammer, you should report this to the ATO; contact your bank or financial institution; make a formal police report; and report the scam to SCAMwatch or the Australian Cybercrime Online Reporting Network (ACORN).

If you have provided personal information such as your tax file number to a suspected scammer, you should also call the ATO scam hotline as soon as possible.

Be alert to scams

Everyone needs to be vigilant about unexpected communications from the ATO. Contact us today if you have any doubts about a recent communication you have received from the ATO or if you have any concerns that you may have fallen victim to an impersonation scam.

Beware of tax scams. Never pay an alleged tax debt without first talking to your tax agent.

Call us at Robert Goodman Accountants on 07 3289 1700 or email us at reception@rgoodman.com.au.  © Copyright 2019. All rights reserved. Source: Thomson Reuters. Brought to you by Robert Goodman Accountants.